I am fascinated by how the global stock markets can fluctuate as much as they have in recent months, mostly on relatively small movements in some piece of data on China, and mostly relative to what had been predicted in financial markets.

The mounting concern has been that China’s economic growth is slowing somewhat faster than had been hoped, or expected. Each data release is therefore scrutinized to see whether it can be taken to confirm such a trend.

But the markets can swing and be nervous on relatively small movements in data, which also seem to worry the Chinese policymakers who, at times, seem to overreact.

For example, recently the “official” manufacturing Purchasing Managers’ Indices (PMI) rose marginally from 49.7 to 49.8, while the “unofficial” Caixin/Markit index fell marginally from 47.3 to 47.2, and company profits recorded the biggest drop in four years. In response, the Government cut the mortgage down-payment requirement for first-time buyers, and halved the sales tax on cars.

Of course, one of the difficulties is that Chinese data are accepted as “reliable”, and are judged through Western eyes, and by Western market standards, even though much of the data come with an “official imprimatur”, and the Chinese authorities often still try to use command economy responses to influence market forces.

I have never trusted Chinese growth numbers. I was in China a few years ago when, in the middle of the month of September, the Government announced the GDP growth rate for the September quarter — that is, before the end of the quarter. In Australia, we wouldn’t be able to announce such a rate until about the first week of December.

Also, if you follow quarterly Chinese growth numbers, you will have observed how “smooth” they are, from one quarter to the next – much smoother than any OECD country.

The situation calls for judgment. Clearly, Chinese growth is slowing and, I suspect, by much more than the Government is prepared to admit – more like 5 per cent rather than 7 per cent.

This growth is now seriously constrained by the structural weaknesses of the Chinese economy that become more evident, and challenging, as growth slows.

It has long been accepted that once the growth rate falls to around 6 per cent or less, the risk of serious social unrest may increase significantly.

The sort of correction we have seen in the Shanghai stock market in the last few months impacts directly on the “mum and dad investors”, who clearly dominate that market, and who have probably borrowed substantially to fund their investments. It can further compound the risk of social discontent, if not unrest.

Australia was able to weather much of the GFC on the back of a vibrant Chinese economy, and particularly strong demand for our coal, iron ore, and other exports.

These days are gone. Further, we can’t expect that they will return quickly, maybe not for many, many, years.

Apart from anything else, the “China factor” alone will mean that we will need to get used to our growth rate with a “2” in front of it, or maybe even less.

It certainly won’t rocket back to 3.5 per cent towards the end of this decade, as assumed in the last federal Budget, without a significant shift in Government policies and much needed reform across most policy areas.